good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for friday nov ninth two thousand and twelve bloomberg reports u.k. prosecutors are ready to arrest traders and rate setters within a month for questioning over their role in the library scandal these are folks that u.b.s. r.b.s. and barclays so will we see bankers in costs for their war against a price mechanism will discuss and resulting the fiscal cliff. i outlined a responsible parent forward to avert the fiscal cliff without raising tax rates we're serious about reducing the ups. to combine spending cuts with revenue.

that sounds pretty opposed to good luck with that grand bargain guys so maybe we'll go off the cliff and what that really be so bad well you can decide might moloney of gold silver is here to weigh and cvo was out with a view of what a plunge would mean as far as a recession and unemployment goes and it's not about what the demographic that wakes up and says this is going through. right now. there's a tightening. of the woolly nike's demographic that realizes they have no savings this is according to mike maloney he'll tell us all about it let's get to today's capital account.

all right let's talk about the fiscal cliff because how can you avoid it the impact from going over it would be a recession in the u.s. economy next year and an increase in the jobless rate to nine point one percent by the end of two thousand and thirteen at seven point nine percent now and a deal to avert this would mean a deficit five hundred three billion dollars higher than it would otherwise have been in fiscal year two thousand and thirteen now this is all according to a new congressional budget office report the c b o is a supposedly nonpartisan research arm for congress keep in mind these are the folks that a few months ago said growth will average four point three percent from two thousand and fourteen through two thousand and seventeen a rate the u.s. hasn't seen for more than a decade but who knows pigs can fly maybe they'll fly off the fiscal cliff we don't know but the political rhetoric has started flying back and forth that's for sure house speaker john boehner today said this we're spending

a trillion dollars more than what we. continue to do that. this is year two. thousand and four of your demographic bubble. was one anyone could see it coming. baby boomers won't be returning never do. a demographic bubble now of course boehner is using this argument to talk about reforming entitlements but actually our guest counts as group as part of the demographic that wakes up and says oh holy i have no savings what to do well joining me from our l.a. studios mike malone to tell us who's founder of gold silver dot com author of the book the guide to investing in gold and silver part of the rich dad poor dad series and he's always someone that we hear a capital account in our viewers love to hear from so thanks so much for being on the show this friday. thank you more on how are you doing now i actually can't hear

a word that you just said but i am sure we can get that fixed and i think you just said thank you but now that the elections are over it is all about the fiscal cliff everywhere you look at what happens if the u.s. goes over the fiscal cliff and what are politicians going to do to avert the fiscal cliff and can they come to an agreement let's step back out of this narrative that the u.s. has to avert this cliff in order to avoid recession and doesn't really matter long term mike whether we go off the fiscal cliff or not. no it doesn't it's just a little more pain now or a whole bunch more later this fiscal cliff they're talking about it's like it just appeared there in front of us and the whole thing is that this trap was set back in between two thousand and one and two thousand and three when we had we started the war on terror the war on afghanistan the war in iraq. and so we increased deficit

spending then we bush we did the bush tax cuts which borrows prosperity out of the future you're going to cut taxes so there's less revenues and that increases deficit spending there's less revenues coming in you're still doing the same levels of spending then we increased the levels of spending when we passed medicare part d. all these things together add up to what is happening today these choices that they're left with and one of the big problems here it's the total size of government the choice they will make is the choice to try and do a short term remedy and make next year a little bit easier by and not tightening up on spending and allowing the country to go into a deeper recession because of that they're probably going to choose to do this extra deficit spending every time. do deficit spending it increases the size of

government and the whole thing is government is like this cancer in a body and government now accounts for more than fifty percent of the u.s. economy when you include all of the trickle down the janitor that works in a federal building who then goes shopping and buys groceries and so on so it's right now they have to do more government spending and increase the size of government to get this temporary boost that all those government jobs are frictional jobs they don't actually can create new stuff that contributes to the economy it all sort of takes energy out of the economy and so at the end of the day they're going to do this short term remedy but it leaves us with an even larger government compared to the size of the private sector and it's just all bad news for the economy but what i'm amazed it is suddenly this if this fiscal cliff appeared the day after election day right as events have been and we have been

there right it's been there for a decade now right right so then my question to you mike ok people may not agree on the solutions in the fiscal cliff they may not agree on not extending these these tax cuts they may not agree on these particular spending cuts that are from the sequester ation but one going off the fiscal cliff at least start to chip away at this cancer even if we can agree on this being the best solution to do that yes it would i would argue that we did step off the fiscal cliff and we've been in freefall ever since the bush tax cuts and we passed medicare part d. back in two thousand and one to two thousand and three is when all of these events that took place that created this cliff we've really right now like ron paul said in a recent interview we're just trying to determine really how we're going to land and what. we're in freefall we stepped over the cliff there's no way of avoiding this

no matter what they do. a temporary solution is put it off into the future it's better to take the bad medicine now and suffer a bit now than to do a temporary patch that's just going to make the total problem larger in the future right and you keep referring to two thousand and one to two thousand and three these are the bush tax cuts it was bush that approved medicare part d. without us paying for it or finding a way to raise the revenue to pay for it or are a lot in the revenue it was bush that got us into two wars without knowing how we would pay for it and paying for it with the deficit so i mean the republicans are not the party of fiscal soundness and are there is there an option for fiscal soundness well there's definitely well yes there was you know ron paul. he was the only candidate that actually knows something about economics and the basic problem that we've got is we have this popularity contest every four years

and we elect the guy that is sort of good looking that can do a thirty second sound bite without putting his foot in his mouth and we send him to washington and we charge you know we do this in mass we do it with all of the congressmen senators and presidents on and we send them to washington and charge them with the responsibility of running the economy by taxing us and redistributing our wealth and they know nothing about economics and the economic consequences of what they do. and there is this whole concept that there's a portion of people and probably a lot of people that voted for obama who won who believe that you need to tax maybe the rich more redistribute the wealth and that that's a solution to the middle class but what about the role of monetary policy and to what extent has this controlled booms and busts that have helped to pump and dump the middle class. monetary policy is the basis for this. big wealth

transfer that's been going on for a long time now from the middle class to the banking sector basically but you know when people when people say we need to tax the rich they don't they're not really thinking this through what you need to do is just make a level playing field for everybody and let the allow the free markets to work we do not have a free market society we have a myth completely manipulated economy because of the. currency is controlled there's a small group of men the f o m c committee at the federal reserve that determine on a regular basis what the quantity of currency is going to be and what the cost of that currency is going to be interest rates and currency is fifty percent of every transaction that means that the entire economy is manipulated by that small group of men and they do not have all the information that the free market has the free market has the information of every single transaction that goes on in a society and these men have the arrogance and audacity to think that they know

better but when people say tax the rich they also don't realize that that one percent employs the other ninety nine percent they're the ones that create the jobs and so on there comes a point where it just isn't worth it it's a very difficult thing to try and be an entrepreneur and to strike out on your own you take huge levels of risk and that risk after a while just isn't worth it. by taxing by taxing too much that one percent you know . most of the small corporations in the us are s. corporations meaning that the tax consequences of the corporation flows through to the. the key shareholders of that corporation the owners and so it looks like personal income when in fact it's the income of the corporation and the and the entrepreneur wants his business to grow all he wants to do is leave that money there in the company well. let's say we want to tax the rich we want to tax all

these people that are making too much money and we want to take it away from them that these people own corporations and therefore they can hire more people next year and keep up with the growth that they would like to create for their corporation for themselves and for their employees once you take say take a thousand dollars away from a corporation and then you run it through the system and so you're going to hand that check over to the i.r.s. and all those employees at the i.r.s. that sit there type in numbers into computers and things they sort of put their hands on that money and some of it sticks to their fingers and then it gets turned over to the treasury and it runs through there is some of it sticks to their fingers and then congress has to pass some law and redistribute what's left and by then by now there's only seventy percent of it left right and they create some law and they're going to do some work project or create some spending here or there and so some of the six to congress's fingers to everybody has to get paid all down the

line but these are all fictional jobs they didn't create a new product or a new service that went directly into the economy and then they create some somebody has this great idea that wasn't an idea that the free market when you have a free market people vote with their wallets they determine what they want by how many dollars come chasing that new product or idea that an entrepreneur comes up with you make the wrong choices you get punished by the free market go bankrupt you make the right choices you get rewarded by the market and you succeed and hopefully you get rich and it makes your business rich right only reason that people want to take a risk that by the time it gets down to the actual paying somebody that's been doing that government job there's maybe fifty sixty percent of the economic energy left and those dollars that has been taken and paid all these people that have fictional john. and the government might make

a choice like during the great depression we had the c.c.c. the civilian conservation corps and one of the things they did was they built all of the trails in the national parks which i think are great and i use them it's a wonderful thing that they're there however how did that help the great depression their text. individuals and productive businesses and sent people out of the wilderness to build trails that a very few people were going to use and it didn't put energy back into the economic system and help to get us out of the great depression where we hear that he. made gave those people a paycheck in the short term but it didn't contribute to a long term fix for it i would get us out of it but mike i have to ask you to hold that thought if i may for just a moment we're going to go to break but delaware will come back and have lots more with you he's mike maloney author and founder of gold silver dot com and still ahead i will also respond to you know to some of our viewers in tonight's your feedback segment and our feel of big name guess that'll be coming on our show next

week be sure to state in the first closing market numbers. on the. twentieth century.

kalashnikov's. the to do an image of. the two.

welcome back we're talking to mike maloney author and founder of gold silver dot com about the fiscal cliff what happens if we go off it why we shouldn't go off it why not do it in the cancer that is so large in this country of government spending so let's bring my money back in because before the break we were talking about misallocation of capital and that in the government's misallocation of capital if we're trusting them to redistribute wealth to get the economy going what question i

do have so in the example you gave of sending workers to go build trail's end ok so they have a short term job but this is not contributing to the long term wealth and recovery of the economy what do you do in this situation if you if you want ok if you want to have the kind of solution that you're looking for in terms of allowing the free market to clear things to then allow for recovery what do you do in the interim about unemployment and many people that are jobless and they can't eat they can't feed their families they don't have money they can't pay rent they need jobs what do you about that issue that part of it. well. you know. you don't try to answer that question you just let the economy do what it needs to do and i think that unemployment rates would soar for quite a while and we would have a very. severe recession or even a depression but then there is a recovery and if you don't keep on asking the government every time we ask the

government to do something about it we feed the cancer and the cancer grows the cancer is government not just government spending but just government in general the size of it how much of the economic energy it's sucking away. the free markets unemployment will go up and down there will be little booms and busts but our general standard of living would probably be far higher and you know the economy would look very different. it would be distributed differently i have a feeling it would actually be more level right now what we do our entire monetary system skews things toward the financial sector the way currency is created for instance in riches the banking system the financial sector at the expense of the middle class basically transfers wealth from the entire country to the financial system and let's turn our monetary system works well and let's talk about that the middle class because you talk about this demographic of people that wake up one day

and go hawley's nike's i can't say what you say we have no savings we we have no wealth what is created this dynamic and who are these holy. demographic people in your view yeah you played a clip earlier where somebody said this demographic the baby boom demographic moving into retirement well there's the demographic. forty. six years old to fifty five that's the maximum spending demographic it's called this is where people are. the most successful of their careers are getting paid the most they're paying the most taxes into the system and they're spending the most money into the economy because they've now got to send their kids off to college and they're buying their kids' cars and they're living in the biggest house of their lifetime and and all of that then when they get in the into the fifty six

to sixty five year old category at that point they're empty nesters and they're looking at oh my god we didn't save anything for our own retirement when we want to retire in just ten years so they have to pull in their horns they are going to downsize from their big four or five bedroom house down to a little apartment or retire or you know move to a golf course or something like that they're going to try and limit their expenditures and they're going to keep everything in the stock market or whatever it will drive up that financial sector but they're not spending that into the economy they're not going out and buying a whole bunch of retail goods anymore and we're just going into the phase right now where some of the baby boomers are retiring the rest of them are moving out of the fight for the maximum spending demographic into this maximum savings demographic at the same time that the oldest baby boomers are starting to go into retirement and

so it's a mix you know they've known this for a long long time but nobody wanted to talk about it because the party was going on then i mean we had the nasdaq in the late ninety's and. the clinton years were pretty good financially because of these bubbles that everybody was enjoying and then all we did was borrow prosperity out of the future all in the last decade we have just been sort of boosting the economy to try and keep the party going but you know the longer we stay here. part of the worse the hangover is going to be will sounds like you're projecting a pretty big hangover because if you're lucky enough to be a baby boomer that didn't lose everything in the stock market during one of those busts or you lose your house in a housing crash or whatever and you and you have. some income some things you're saying that you're going to be downsizing you're going to be not spending on the economy and if people are looking for consumer spending to spur some kind of

a recovery or housing you're saying that this big major demographic in the baby boomers are not going to do that they're going to be doing the opposite they're going to be trying to save right right and if you look at this wave of baby boomers going from the date they're born this big wave going through the economy if you've got like time going one direction and economic and energy when they hit this maximum spending demographic that is where they are pumping the most economic energy into the system and once they pass this so if you could make a graph of this wave of economic energy it would sort of from the sixty's when it started to increase and it peaked just in this last decade and we're just here right now and then it goes ok we just don't have. much larger population you know every year from the sixty's until just this last decade we've had a greater number of people move into that maximum spending demographic in the

prior years and that has been growing up until now and now it's actually shrinking the demographic aspect of this is so interesting it's a unique take that i haven't quite heard put that way thanks so much my pallone for bringing it to all of our viewers he's author and founder of gold silver dot com. it's friday let's wrap up with a little loose change this is a loose change of your feedback before we go so earlier this week i made one viewer happy they said lauren thank you so much for inviting grant williams when i asked weeks ago and you picked my note i was more than surprised now you kept your word i

saw grant for the first time on your show today after lots of. long ago where two said that and that's of course a play on grant williams's newsletter which is things that make you go so i guess the moral the story is ask and you shall receive provided it's a good suggestion of course we'll try to get the guests you love on our show another viewer said lauren or capital account can you please post links to those charts i can't find on get his website that oils one was amazing and people just don't get it it's crazy thanks dragon-fly said that referring to do that we use some charts and i've gotten this kind of feedback from many viewers so i just want to say that we do put a lot of the charts that we use on our facebook so i always check there it's facebook dot com slash capital account and for the particular charts you were asking for you can go to gold money dot com and look for the paper that james turk wrote called the above ground gold stock its importance and its size and that's where we got all of those really interesting illuminating charts including the one

you like so much showing oil prices and gold and other currencies now others on facebook said excuse me others said this we had alan greenspan a clip of him talking about the fiscal cliff and several viewers noted the irony of it one said greenspan warning about the fiscal cliff look who is talking and another said greenspan you are the one that cut the brakes on the car going down the hill so yes we see the irony but i also want to point out one of our viewers said look who's talking i say look who isn't talking about the fiscal cliff no when it's all over now that the elections are done. we peer over the edge of the nation's fiscal cliff it's a term you'll be hearing a lot more sure over the so-called fiscal cliff all of it goes back to the fiscal cliff seven hundred billion dollars in tax cuts. ok it's still a month and

a half away and i already have fiscal cliff fifty so we're having a contest to rename the fiscal cliff the winner will get i don't know a shout out bragging rights and maybe i'll even start using your term instead of fiscal cliff on the show so go to our facebook page facebook dot com slash capital account put somewhere for you to weigh in and i want your best renaming for the fiscal cliff now one of our shows this week and cited a debate over whether the government spending and debt can be compared to households and ten said when you send a check to the utility company they cash it how about your mortgage same thing not for governments or especially the u.s. if it is a foreign bank or government they really cash it in most of what the u.s. owes is to itself held by the federal reserve is quite possible for the government to shut down the fed and start up a new one or change the rules a family with a bank can't do that no family can't tell the bank to print money to pay their bills doesn't i really wish they could but just because the government arguably can

make its own rules print its own money doesn't mean that there's a free lunch that wealth is being confiscated from somewhere from someone and that's what we take issue with now so if a mirror said i had to get close to the screen to believe my after reading guest names can't wait he was talking about this market calendar it's coming up if we have the graphic yeah there it is ok so this is the post-election economy it is a panel that i will actually be moderating with john. barry ritholtz and other great big names i'll be doing it next week it will air on the twentieth so check out our facebook and market calendar and that is all we have time for thank you so much for watching beast. to come back next week and in the meantime you can follow me on twitter at war lester you can like us on our facebook page watch us on you tube or hulu and come back tomorrow because on tuesday you are bart chilton and this is the f.t.c. you want to mess it up right now.

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